For months, rumors have swirled around the Web alleging that Microsoft helped finance a small Utah software company's suit against IBM and two corporations that use Linux software. BusinessWeek has learned that Microsoft (MSFT ) did not put up the money, but did play matchmaker for SCO Group (SCOX ) and BayStar Capital, a San Francisco hedge fund which made a $50 million investment in SCO last October. Advertisement

Lawrence Goldfarb, managing partner of BayStar, says that senior executives at the software giant had telephoned him about two months before the investment. Would he be interested in investing in SCO, they asked? Goldfarb wouldn't identify the executives, but says neither Chairman William Gates nor CEO Steve Ballmer were among them. He says Microsoft didn't put any money into BayStar or the SCO investment. A Microsoft spokesman says that the company has no "direct or indirect" financial relations with BayStar, but declined to comment when asked whether execs called BayStar to suggest investing in SCO.

No tech company has ever managed to make as many enemies in as short a time as SCO, which has picked a fight with the entire Linux community (see BW, 2/2/04, "The Most Hated Company In Tech"). Based in Lindon, Utah, SCO says it inherited control of the original Unix computer server software developed at Bell Labs more than 30 years.

HIGH STAKES. When CEO Darl McBride took control of the floundering company two years ago, it was struggling to sell both Linux software -- which he now claims infringes on SCO-owned intellectual property -- and specialized Unix software that runs on microprocessors made by Intel (INTC ). McBride saw the old Unix technology as a way out, and tiptoed into a program that would license SCO's technology to Linux customers and other tech companies.

The industry reaction to the licensing program was at best tepid, and SCO filed a lawsuit against IBM (IBM ) -- claiming damages that are now up to $5 billion -- in March, 2003. On March 3, 2004, SCO upped the ante, filing suit against two big corporate users of Linux software, AutoZone (AZO ) and DaimlerChrysler (DCX ).

SCO has a fourth suit pending against fellow Utah software maker Novell (NOVL ), claiming that Novell is interfering with SCO's business by publicly arguing that it, not SCO, is actually the owner of the intellectual property that's the basis of SCO's claims.

LEAKED MEMO. SCO would have had difficulty paying for its varied litigation without the BayStar funding. BayStar is a hedge fund that manages an estimated $400 million. In essence, it's almost a miniature version of Warren Buffett's Berkshire Hathaway. It has invested in more than 300 companies since it was founded in 1998, mostly in life sciences. About 27% of its investments last year were in software. And it specializes in financing for companies that are already public.

So where does Microsoft come in? Linux, a computer operating system, threatens Microsoft's Windows dominance. Microsoft was also one of the first companies to buy into SCO's licensing program, taking two licenses from SCO worth more than $12 million, according to sources close to SCO. Other big tech companies, including Sun Microsystems (SUNW ) and Computer Associates International (CA ), have also bought licenses from SCO.

Linux enthusiasts have long fretted that Microsoft is an unseen hand behind SCO's suits, a charge both companies deny. But a memo from an SCO consultant to SCO executives that was leaked to Linux advocate Eric Raymond added plenty more fuel to the fire.

WINDOWS BREAKER? Raymond posted the e-mail -- a grammatically and factually jumbled memo that seemed to claim direct Microsoft involvement in SCO -- on the Web on Mar. 2. An SCO spokesman confirmed the e-mail was real, but said the consultant misunderstood Microsoft's involvement.

Goldfarb's latest revelations don't provide a smoking gun, but they will undoubtedly add more grist for the suspicions of Linux enthusiasts who believe Microsoft is pulling out the stops to curb adoption of their beloved software.


By Jim Kerstetter in San Mateo, Calif.
Edited by Douglas Harbrecht

Source:
http://www.businessweek.com/technology/content/mar2004/tc20040311_8915_tc119.htm


Purfus

So SCO is right. They ARE just like the RIAA.

once it's in the open they'll never be able to control it again. it's a waste of time and money.

They are just like them. For some reason the current legal system is creating an incentive for companies to act in this manner.

I'm struck with this vision of children in three piece suits wallowing in a sandbox arguing over their shovels and sandcastles

The only difference is that the children aren't in a sandbox anymore.

I really hope sco goes down hard.

For a while now, I've suspected that Microsoft was involved. IANAL, but I believe will probably lose the case, but you have to remember, in this country, just because you have no case, doesn't mean you won't win.

This article does not confirm the involvement of Microsoft. Just raises more suspicions.

Companies will protect their interests. I doubt, however, that Microsoft is indirectly or directly bankrolling SCO's lawsuits through baystar. They've got other things to worry about. From talking with Microsoft managers myself (and I get plenty of opportunities, seeing that I live in Redmond and lots of people who live here work there), they seem a lot more worried about Apple than Linux. Oh, it's on their minds- i just think it's not as important as a priority as Apple is.

:-:~ Phantom

Its impossible to predict something like this. Noone really understands where some pieces of linux come from. Over thirty years the codes been licenced so many times under so many conditions and with so many modifications its impossible to work out how it all fits together. If SCO loses, thats good. If they win, the linux programers will do their best to remove any code which could cause trouble - thats part of the multiprocessor support, nothing else - and start a run of kernel upgrades.